1Q22 Earnings Disappoint
We expected a solid 1Q22 from HCA, in- line guidance, and positive commentary on surgical volume and labor costs heading into 2Q22. What HCA delivered was an in- line 1Q22, lowered 2022 guidance that included a $500M reduction at the topline, or 0.80%, and $750M for EBITDA, or 6% lower. Additionally, management had bearish commentary on contract staffing and labor rates going forward. Are we wrong or just early? The stock is taking the 6% decline in EBITDA and adding another 10-15% drop in the multiple, which seems excessive. We updated data from our presentation earlier this week and trends look intact with our outlook.
Labor rates: Two thirds of the guidance reduction was attributed to on contract labor rates and wage inflation for permanent staff. For 1Q22 as a whole, temp rates remained high, but on a weekly basis spot labor rates by specialty fell from the Omicron highs in January, which is reason to be more optimistic than management on labor rates. HCA called out a 1.5% increase in the base rates that led to most of the lowered EBITDA guide, but they also stated they are seeing only a modest reduction in contract rates and volume as 1Q22 progressed. The trends we are seeing point to more significant moderation than HCA's comments today, or THC's comments yesterday.
Occupancy: The weekly facility level occupancy we were expecting for 1Q22 was exactly in- line with HCA's reported occupancy. On a daily basis, non-COVID hospital occupancy continues to trend higher from March into April 2022, which continues the trend from January lows. We expect this trend will be accretive to top- line and margins.
Surgical case volume: Omicron suppressed surgical volume in 1Q22, but the headwind peaked in January and has been trending positively in February, March, and now April 2022. Management only commented on trends through March, but according to the data, 2Q22 should see a strong rebound in surgical case volume as non-COVID volume recovers sequentially.
Volume and Pricing: The output for same facility volume and pricing on an equivalent admissions basis came in as expected on the quarter. The comps on wages begin to ease after 2Q22 for SWB per equivalent patient day.
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Thomas Tobin
Managing Director
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